Kris Murray, creator of the Daycare Success System, shares her insider tips about how to get started in the day care business. She reveals what kinds of licenses and certifications you need, finding start-up money, marketing successfully, and avoiding the five biggest mistakes most people make. [23 min.]
Start by giving us an overview of the daycare business and why it’s a good business to start.
Daycare is an excellent business for a lot of people, but the number one group of folks that really benefit from starting a daycare business are the stay-at-home moms who are looking for a way to stay home with their children and convert a portion of their home into a childcare business. The reasons why it’s such a great business to start, in particular for that group, is it’s a very low start-up cost, so you don’t need a lot of money to get started, and most moms, in particular, already have all of the resources and items that are needed for a childcare business. Another good reason is that if you do it out of your home, you actually receive a huge tax benefit. A home based childcare business has its own tax rules that are unlike any other business that you’ll find, because they take unique things into account. You can write off many, many, many of the expenses, like your home utilities and things like that. So its little start-up, it can be a very profitable business, you can use the things that you already have in your home and there are tax advantages. Those are probably the four main reasons why it’s such a great business.
How much can one person reasonably expect to make a year providing daycare services?
Well, it ranges quite a bit, as you might expect. There are different levels of childcare that you can provide, so you can go anywhere from just doing a part-time preschool in your home and make a couple hundred dollars a week extra, all the way to a full-fledged child development center in your home or outside of your home, so it’s a really wide range. But I would say the average, especially for somebody just starting out, is $3,000-4,000 a month, sometimes up to $5,000 a month, which then would translate into an annual income of anywhere between $40,000-60,000 a year.
What kind of space and equipment and supplies do you need to get started? I’m guessing it’s more than a spare room and a box of toys.
Actually, you can just get started with a spare room and a box of toys, and that’s the beauty about a home-based daycare business. Typically, in order to get licensed, you usually need an outside space that’s accessible—a nice, fenced-in, outdoor play area, and that is something that is typically required by many states and many insurance providers.
Talk about caregiver ratios. How many children can one person safely take care of? What do you find makes the most sense?
This is all related back to the state licensing regulations and rules, so that’s really the basis for what you want to do. The very first step that someone should take when they are thinking about starting a daycare business is they need to contact their state. Usually the department of job and family services, or something like that. It’s easy to find—you just go to your state’s website and look for children and family services, and you can call them. The ratios are enforced at the state level. For example, I live in Ohio, and we have the small child care home, and they require you to have six children to one caregiver—that is the ratio overall. Now, if you have your own children in addition, you have to count your own children in that total of six children. That’s why I say it’s important to understand your states rules and regulations, because you need to make a plan and look at what you think you’re going to be able to bring in income-wise, and then what are your goals. If you’re hoping to offset an income level of $4,000 a month, but you have three children under the age of six, so in Ohio, you would only be able to take three more children—so you may not be able to make the income goal that you really need. So that’s why it’s important, at the very, very first step, to call your state and ask them these questions so that you can make sure that starting a daycare is going to be the right business decision for you.
At a minimum, what kind of training or certifications do you recommend? Do you need a college degree?
You don’t need a college degree. For a center, you could either purchase a franchise or you can build or start a center. For the home daycare, usually what’s required—and again, this is all tied into rules and regulations at the state level—the typical training and certification that you need is simply a CPR/First Aid certification and oftentimes a high school diploma or GED. For example, in Texas, they just require a GED, a high school diploma and also your First Aid/CPR training which you can typically get at a YMCA or any other local training facility. That’s a very small amount of training for somebody that is taking care of children. If you wanted to get more training, there are lots of places and lots of resources that you might imagine for training. The first major resource that you want to know about and check out is called the Childcare Resource and Referral Agency, and there’s a national umbrella that manages all of the Childcare Resource and Referrals around the country—it’s called the National Association for Childcare Resource and Referral Agencies. From there, you can put your zip code into their website and get your local office. You want to contact your local Childcare Resource and Referral Agency—they have local training, they oftentimes have weekend training for new providers, they’ll do like a jumpstart class and they’ll provide it to you in one Saturday—you’ll stay there all day and get fully trained. And usually it’s very inexpensive through your local CCR&R. Another place that you can get training is you can go to childcarelounge.com, and they offer links then to get your CDA, which is another level of training—kind of like your Associates degree in childcare—you’ve got the basic training, the CPR, and you have your high school diploma, then you went to your CCR&R and got their training, and now you want to go to the next level and be able to actually have something on your wall presented to your families that you’ve gotten that extra level of training. That’s the CDA which stands for Child Development Associates. Its 120 hours. There are many places online that offer it, all you have to do is type in Child development Associates, and you can get all sorts of places that offer it. The other level is, if you are then going to be in business and you’re going to have a childcare center outside of your home, then I obviously recommend for you to get business and marketing training.
What are the childcare center franchises? What are your thoughts on those?
There are all sorts of franchises out there. They can be an excellent way to get started for somebody who has a vision of wanting to start a childcare center and have some availability to a larger amount of funds. As you know, Matt, franchises are not inexpensive, and in particular, childcare franchises can be anywhere from $100,000 to a half million dollar investment. If you have the funding and/or the savings, access to funds, and you have more of an entrepreneurial mindset, you have the business background, and you have a love for children and you knew that you wanted to open a childcare center, or even if you live in a town where there’s a desperate need for quality childcare. That would be something that would probably be a really good business to go into. What’s happening in the economy right now is that due to the downturn that we’re experiencing, lots of moms are going back to work who were stay-at-home moms, either their husbands are getting laid off or getting salary reductions and they need to go back to work to make ends meet. There is a need for childcare out there, especially in certain markets where franchises have not yet been created. Obviously, do a market analysis before you spend that huge investment of your time and money to make sure that your market could compete—but those are all things to consider, do your competitive analysis—I’m not going to recommend one franchise over another, I don’t have that level of expertise. The thing about a franchise is that you get this system, you get everything handed to you from the corporate level of the franchise. It’s kind of nice because the business is already all systematized for you and it’s a little more turnkey. Those are the advantages.
If you decide to expand beyond just yourself, how do you find qualified people? What kind of background check do you recommend?
I do recommend a full childcare background check, I don’t really have a background check company that I would recommend over another, but there are all sorts of background check companies out there and I would recommend doing that for all of your employees. There’s another really good resource called JOBehaviors.com, and what you can do is even before a candidate comes in to interview, you can have them go to your own private link online and take these online assessments. The assessments are a really good way to save yourself some time and make sure that you’re hiring the right people from the start.
What should your operating hours be? Should you offer care for parents that work very early in the morning or very late into the evening?
This really gets to the number one strategy that I try to help people with when they’re first starting to think about starting their childcare business. You should look at the market and do a market analysis, and if you’re in a market that has a lot of factories or people working second shift, you may not have that many childcare facilities or homes that are providing second shift, or even third shift. Other examples of niches that you might go into to meet this kind of untapped need in the marketplace is you can market yourself as a green center, where everything that you do is environmentally friendly, from the lights to your trash and then possibly serving organic meals, so you have to really look at your market. What are the niche opportunities that you can go into? And also something that fits your personality.
What about startup money? Are there loan and grant programs available for starting childcare business?
Well, it really varies by location. Earlier I mentioned the Childcare Resource and Referral Agencies that are at the local level, and that is the group that is going to be able to help you first and foremost, so what I always recommend to people is that they contact their local CCR&R and they ask for the person who is handling the grant and special loan program, and usually there’s somebody on staff who can help you. There are different rules in different regions, so for example, in Cleveland, they have a grant program, but it’s only for centers, it’s not for homes—it’s specifically for if you want to improve your existing center. So if you wanted to improve the facilities, expand your playground, improve the parking, etc., you can apply for the grant through the local foundations that are working with these local CCR&R groups, so I recommend that you first find out what they have available through that resource, United Way and the Casey Foundation, those are two nationwide resources that often will offer local grants to childcare centers.
What about special daycare center liability insurance? Is this expensive?
It’s not expensive. At least for a home daycare center, it’s actually very affordable. For a full daycare center, it can be a little bit more expensive. The home-based providers can get a really good business liability policy for approximately $30-$40 a month. In the Daycare Success System, I do have a full hour where I speak with an insurance professional and she provides a huge amount of information about this topic because this can be a real concern, especially for a home provider who oftentimes will just rely on putting riders on their homeowners policy—which is an option—to cover any liability that they might incur. We really recommend that you do go the extra step and get a business liability policy, which again, is around $350-$400 per year.
Many daycare centers have a preschool or pre-kindergarten component to them. Talk about the advantages and disadvantages of going this route.
I strongly believe that daycare center owners, whether they’re in a home or not in a home, should, if possible, have a learning aspect to the center. Calling it a child development center, which is kind of the philosophy of a preschool or pre-K, is that there’s learning going on there. So even for instance, you can call it a learning center or a child development center, and position your childcare business so that they do have a curriculum and you are actually spending time with them on an infant-based, all the way through a pre-K based, curriculum. Even in a home with mixed ages where you’re caring for all different ages, it can be a little bit more challenging to do a learning program, but I think that that is where you want to be. You can charge more when you do a learning-type environment, and it gives more structure to your day. So usually, your day will go smoother and the children will be easier to care for and handle because their brains are full, they’re learning, and it’s not just open play time throughout the day. So you’re sticking to a routine, they know what to expect, it feels more comforting. For example, every morning is circle time and then we have reading time in the reading nook, and then we have music time and so I think, taking it with that type of an approach is what I would recommend.
So you’ve got your daycare all set up. How do you go about finding customers? What type of daycare advertising strategies are successful? I’m guessing word of mouth is pretty high on your list.
Word of mouth, as we’ve all heard, is the best form of advertising. But as I mentioned earlier, what you really want to do is set yourself up for success initially by specializing, so you want to specialize in an area that you can see that the market really needs. For example, going back to the environmentally friendly or organic meal example, I’ve got several customers telling me that they’re going to focus on that niche, and it’s really about looking at your market. What kind of town do you live in? Do you live in a town that is a college town and has lots of university professors that have children that need care? That might cause you to go into one area of specialization. Do you live in a town that’s more blue-collar and has lots of factories that might lead you into another area of specialization or offering a different type of care, more towards second shift, for example, like we talked about. As far as finding customers, it’s about finding the specialization and the unmet need in the marketplace, and that’s the first step for success that you want to do. Then, when you want to open your doors, you also want to advertise and market your services. I am a big proponent of advertising and marketing your services all year round, so marketing is not just a one-shot approach. You want to consistently and always be marketing your daycare center so that you can create a waiting list and always be full. Some of the traditional ways of advertising can work very well. Those would be making sure that you have signage out front—hopefully if you’re in a home daycare, you can still have some signage in your neighborhood so people know that you do have a service there. And just putting your “Now Enrolling” sign out front can oftentimes get you several people knocking on your door. Also, your local paper is a huge resource for you. Some ways to get some free advertising is by using the simple tool of publicity. What you can do is when you’re about ready to open your doors, you can have an open house, and I suggest having several events through the year. You could have a Christmas party, you could have a summer carnival, and what you want to do is tie those events into getting free publicity by doing a press release. A press release is actually really simple to do, I’ve got some examples in my Daycare Success System, and you just kind of type out what are the benefits to that community and why should the reader be interested in your event. And oftentimes local papers will feature these press releases about local businesses. So you’re going to get word of mouth and people knowing that you’re there just by doing those types of things. Another unique idea is to do what I call a wagon train, which is, if you have a way for you to take the children on a walk around your neighborhood or outside to the community, you could go down to Main Street and take cookies to the different ladies that work in the stores and the shops and the real estate ladies that are talking to people moving into town. You could make some cookies and do little batches of them with your business card stapled to them, and you can pass out cookies to the elementary school ladies in the office, so they know about you, and also to the local businesses, the hair salons, so really, it’s getting the word out in unique ways to the other businesses that you can partner with in your community.
What online daycare forums and other websites do you recommend?
I have a forum on my website, that one is at daycarehotline.com, and there’s another really active and good forum at Daycare.com. Another really good one is at childcarelounge.com, I mentioned them earlier in terms of that they provide training and they provide lots of resources and articles. Those are three forums and websites that I highly recommend. There are websites such as daycarematch.com and then there are really big ones like Care.com.
What childcare and daycare trade associations do you recommend also? What about magazines and trade publications?
The childcare trade association that is the largest are for home daycare providers is the National Association for Family Childcare. There are several trade associations for centers that are not home based. There’s the National Association for the Education of Young Children, and there’s the National Association of Childcare Professionals. Those trade associations all have publications that, when you become a member, and usually its very inexpensive to become a member of those, especially the National Association of Family Childcare, it’s like $75 a year or maybe even less, and they send out quarterly publications. And then there’s a regular magazine that’s not really associated with a trade association, per se, but it’s probably the most widely read childcare magazine which is called Childcare Exchange. You can sign up for their magazine and subscribe, and then they’ll send it to you at your home and it is a really great resource, it’s a large glossy magazine. And also, a lot of those publications can be found at your local library as well, so if you want to check them out before you subscribe, you can do that.
Chris, what are some of the biggest mistakes that people make when they start a daycare business?
Well, I would have to say that the first mistake is not giving enough attention to what’s going on in your market, not doing a full scale market analysis. And by that, it doesn’t have to be that fancy—it might sound like a scary task, but it’s really not. It’s basically just talking to people. It’s doing your research, going to other centers and homes that are providing child care and doing tours and finding out what’s happening in the marketplace. If you want to find out what your local centers are up to and find out how full they are, which I would highly recommend, just go there and kind of pretend that you’re looking for childcare, or if you’re not comfortable doing that, you can have a friend do it for you. Say my sister is moving into town and I’m looking into getting childcare on behalf of my sister and doing research for her. And that way, I don’t feel as uncomfortable about doing my research. You’ll be able to find out what people’s rates are, so what are they charging, how full are they—if they’re completely full and they’re running a waiting list, that’s a pretty good sign. Again, the big mistake is not doing the proper research on the childcare market in your town or city. Another big mistake is not finding out what your state requires of you as a childcare provider. You want to make sure that you understand the rules and regulations in your state, and what the limitations are going to be for your particular situation. For example, a lot of states require that home childcare providers do not have a dog in the facility due to safety concerns and you might not be able to get insurance. If you have a dog and you don’t want to segregate your dog from your children, then that’s an issue in some states. Being aware of the landscape, being aware of what the rules are in your state, that’s the second big mistake that I see people making. Another big mistake is not getting the right liability protection for you and your business. God forbid that something would happen and you would be sued or somebody would be hurt in your home or in your childcare facility and that you wouldn’t have the proper insurance to protect you. That is definitely another thing that you’ll want to take care of and not make that mistake. Another big mistake is not charging the right fees, and so a lot of times providers will either leave money on the table by not charging enough, or they won’t structure their payment properly compared to the competition. Usually that mistake is fixed pretty quickly because if you’re starting out and you’re getting feedback from parents about why they’re not enrolling with you and if it’s related to your fees, those are things that you can adjust fairly quickly. And the final big mistake that I want to mention is not using a daycare policy handbook and a contract. If you’re a home based provider, this is a business. This is not just glorified babysitting. You want to set yourself up as a business owner and present the professional approach that you are a business owner, and then you will get the respect from your prospective parents and you’ll probably get more business, because people will see that you’re taking it seriously, that you’re professional, you’re polished, you have a handbook, you have a contract that you expect people to sign. All of the paperwork that you should go through as a business owner, and I do provide 34 different business forms in my system for people to use, so they can basically take those right out of the box and they can customize them or use them straight as they are for their business, which saves a lot of time. So those are some of the big mistakes that I see people making.
Kris Murray is the creator of the Daycare Success System and helps entrepreneurs start child care centers and home day care businesses.